Funding to be injected by the state to support China Southern Airlines

Funding to be injected by the state to support China Southern Airlines

China Southern Airlines Company Limited announced that the Company intends to raise funds through the non-public issuance of A Shares and H Shares. This exercise will help reduce the Company’s gearing ratio, improve its capital structure and enhance its ability to mitigate risk. China Southern Air Holding Company (“CSAHC”), its parent company, has undertaken to use the full amount of the State’s injected funding of RMB 1.5 billion to subscribe shares to be issued by CSA on a non-public issue basis.

CSA announced that the total proceeds from non-public issue of A Shares will be not more than RMB 10 billion, which will be privately placed to not more than 10 specific investors including CSAHC, its parent company. The Company will also privately place new H Shares to Nan Lung, a wholly-owned subsidiary of CSAHC outside China. The relevant minimum issue prices were determined pursuant to the relevant laws and regulations as well as market practices.

In the past two years, CSA has been actively seeking support from the government to resolve the difficulties arising from insufficient capital and a high gearing ratio. The Company already received funding from the State with an amount of RMB 3 billion through a private placement to CSAHC, its parent company, in 2009. Through this financing exercise, it is expected that the gearing ratio of CSA will be substantially reduced with a significant improvement in the net asset per share. This is expected to lay a solid foundation for CSA’s future development.

In 2010, benefiting from a gradual bottoming-out of the global economy, China’s economy is stabilizing and resuming its growth. The domestic civil aviation industry is expected to recover to a significant extent driven by growth in investment, expansion in consumption and the events like the Asian Games in Guangzhou and the World Expo in Shanghai. For a relatively long period of time in future, passenger traffic for both domestic and international flights will continue to grow at a fast pace, and the aviation market’s condition will further improve. Given the backdrop of revamped development of the civil aviation industry in China, CSA will be well-positioned to achieve sustainable development through the funding of the non-public issue.